SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-6155
AMERICAN GENERAL FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0416090
(State of Incorporation) (I.R.S. Employer
Identification No.)
601 N.W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip Code)
(812) 424-8031
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with
the reduced disclosure format.
At August 13, 1999, there were 10,160,012 shares of the registrant's common
stock, $.50 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues
Finance charges $348,302 $323,953 $697,978 $642,970
Insurance 45,593 44,379 88,527 87,340
Other 27,265 24,965 53,474 48,618
Total revenues 421,160 393,297 839,979 778,928
Expenses
Interest expense 136,568 121,767 271,874 241,071
Operating expenses 127,605 124,280 257,671 246,895
Provision for finance
receivable losses 47,297 49,874 98,141 97,741
Insurance losses and loss
adjustment expenses 19,561 21,731 39,434 43,768
Total expenses 331,031 317,652 667,120 629,475
Income before provision for
income taxes 90,129 75,645 172,859 149,453
Provision for Income Taxes 32,749 28,528 62,805 56,330
Net Income $ 57,380 $ 47,117 $110,054 $ 93,123
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, December 31,
1999 1998
(dollars in thousands)
<S> <C> <C>
Assets
Finance receivables, net of unearned
finance charges:
Real estate loans $ 6,115,832 $ 5,660,414
Non-real estate loans 2,448,900 2,510,525
Retail sales finance 1,208,332 1,301,225
Net finance receivables 9,773,064 9,472,164
Allowance for finance receivable
losses (376,191) (372,923)
Net finance receivables, less allowance
for finance receivable losses 9,396,873 9,099,241
Investment securities 987,746 995,799
Cash and cash equivalents 99,284 129,500
Notes receivable from parent 181,488 182,930
Other assets 700,961 652,131
Total assets $11,366,352 $11,059,601
Liabilities and Shareholder's Equity
Long-term debt $ 5,432,902 $ 5,162,012
Short-term notes payable:
Commercial paper 3,560,362 3,485,648
Banks and other 1,300 -
Insurance claims and policyholder
liabilities 441,478 437,079
Other liabilities 339,105 331,709
Accrued taxes 20,959 19,811
Total liabilities 9,796,106 9,436,259
Shareholder's equity:
Common stock 5,080 5,080
Additional paid-in capital 810,914 810,914
Accumulated other comprehensive
income 12,314 39,419
Retained earnings 741,938 767,929
Total shareholder's equity 1,570,246 1,623,342
Total liabilities and shareholder's equity $11,366,352 $11,059,601
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1999 1998
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 110,054 $ 93,123
Reconciling adjustments:
Provision for finance receivable losses 98,141 97,741
Depreciation and amortization 61,629 47,177
Deferral of finance receivable origination costs (24,773) (21,287)
Deferred income tax charge 3,587 4,090
Change in other assets and other liabilities (8,965) (4,625)
Change in insurance claims and
policyholder liabilities 4,399 (4,064)
Change in taxes receivable and payable (1,631) 3,428
Other, net 23,757 (7,965)
Net cash provided by operating activities 266,198 207,618
Cash Flows from Investing Activities
Finance receivables originated or purchased (2,869,853) (3,017,058)
Principal collections on finance receivables 2,464,241 2,302,872
Investment securities purchased (173,355) (103,393)
Investment securities called, matured and sold 123,717 81,948
Change in notes receivable from parent 1,442 2,003
Transfer of liabilities to parent (22,996) -
Change in premiums on finance receivables
purchased and deferred charges (12,969) (66,003)
Other, net (15,727) (2,387)
Net cash used for investing activities (505,500) (802,018)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 454,867 872,760
Repayment of long-term debt (185,750) (622,700)
Change in short-term notes payable 76,014 350,583
Capital contribution from parent - 22,000
Dividends paid (136,045) (26,315)
Net cash provided by financing activities 209,086 596,328
(Decrease) increase in cash and cash equivalents (30,216) 1,928
Cash and cash equivalents at beginning of period 129,500 91,076
Cash and cash equivalents at end of period $ 99,284 $ 93,004
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 58,897 $ 22,443
Interest paid $ 260,249 $ 235,280
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 57,380 $ 47,117 $110,054 $ 93,123
Other comprehensive income:
Net unrealized (losses)
gains on investment
securities (25,082) 2,147 (40,740) 820
Income tax effect 8,841 (751) 14,335 (287)
Net unrealized (losses)
gains on investment
securities, net of tax (16,241) 1,396 (26,405) 533
Reclassification adjustment
for realized gains
included in net income (654) (92) (959) (94)
Income tax effect 166 32 259 33
Realized gains included in
net income, net of tax (488) (60) (700) (61)
Other comprehensive (loss)
income, net of tax (16,729) 1,336 (27,105) 472
Comprehensive income $ 40,651 $ 48,453 $ 82,949 $ 93,595
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1999
Note 1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim periods and include the accounts of American General Finance
Corporation and its subsidiaries. American General Finance Corporation
will be referred to as "AGFC" or collectively with its subsidiaries,
whether directly or indirectly owned, as the "Company". The subsidiaries
are all wholly-owned and all intercompany items have been eliminated. Per
share information is not included because AGFC is a wholly-owned subsidiary
of American General Finance, Inc. (AGFI). AGFI is a wholly-owned
subsidiary of American General Corporation (American General).
Note 2. Adjustments and Reclassifications
These condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered necessary by
management for a fair presentation of the Company's consolidated financial
position at June 30, 1999 and December 31, 1998, its consolidated results
of operations for the three months and six months ended June 30, 1999 and
1998, its consolidated cash flows for the six months ended June 30, 1999
and 1998, and its consolidated comprehensive income for the three months
and six months ended June 30, 1999 and 1998. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
To conform with the 1999 presentation, certain items in the prior period
have been reclassified.
Note 3. Accounting Changes
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires all
derivative instruments to be recognized at fair value as either assets or
liabilities in the balance sheet. Changes in the fair value of a
derivative instrument are to be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument.
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which defers the effective date of SFAS 133 for one
year, to years beginning after June 15, 2000. Adoption of SFAS 133 is not
expected to have a material impact on the Company's consolidated results of
operations or financial position.
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<PAGE> 7
Note 4. Derivative Financial Instruments
AGFC makes limited use of derivative financial instruments to manage the
cost of its debt and is neither a dealer nor a trader in derivative
financial instruments. AGFC has generally limited its use of derivative
financial instruments to interest rate swap and treasury rate lock
agreements.
AGFC uses interest rate swap agreements to reduce its exposure to adverse
future fluctuations in interest expense rates by effectively converting
certain amounts of floating-rate debt to a fixed-rate basis. At June 30,
1999, interest rate swap agreements in which AGFC contracted to pay
interest at fixed rates and receive interest at floating rates totaled
$985.0 million in notional amount, with a weighted average pay rate of
6.70% and a weighted average receive rate of 4.59%.
Treasury rate lock agreements have been used to hedge against the risk of
rising interest rates on anticipated long-term debt issuances. These
agreements provide for future cash settlements that are a function of
specified U.S. Treasury rates. At June 30, 1999, there were no treasury
rate lock agreements in effect.
AGFC's use of interest rate swap and treasury rate lock agreements did not
have a material effect on the Company's weighted average interest rate or
reported interest expense in the first six months of 1999 or 1998.
Note 5. Tax Return Examinations
The Company is part of the consolidated Federal income tax return that
American General and the majority of its subsidiaries file. The Internal
Revenue Service (IRS) has completed examinations of American General's tax
returns through 1988. During 1999, American General and the IRS reached
a settlement of all contested issues through 1988, which resulted in a
change in the tax basis of assets acquired in a 1988 taxable purchase
business combination. To reflect the new tax basis, the Company reduced
deferred tax liabilities by $68.2 million and reduced goodwill by the same
amount, in accordance with SFAS 109, "Accounting for Income Taxes." The
IRS is currently examining American General's tax returns for 1989 through
1996.
Note 6. Segment Information
The Company has three segments: consumer branches, centralized real
estate, and insurance. The Company's segments are managed separately
because they offer different financial service products. The consumer
branch operation originates and acquires home equity and consumer loans,
extends lines of credit, offers retail sales financing to merchants, and
sells credit and non-credit insurance products. The centralized real
estate operation acquires individual first and second mortgage loans
originated by real estate brokers and purchases portfolios of mortgage
loans originated by various real estate lenders. The insurance operation
writes and assumes credit and non-credit insurance through products that
are sold principally by the consumer branches.
<PAGE>
<PAGE> 8
Because segment information is not calculated separately for the Company,
the following tables display information about AGFI's segments as well as a
reconciliation of its total segment pretax income to its condensed
consolidated financial statement amounts.
Three Months Ended June 30, 1999
Consumer Centralized Total
Branches Real Estate Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $331,032 $ 37,697 $ - $368,729
Insurance 411 - 45,182 45,593
Other (1,138) 1,912 20,302 21,076
Intercompany 17,476 133 (16,994) 615
Pretax income 75,678 3,578 21,592 100,848
Three Months Ended June 30, 1998
Consumer Centralized Total
Branches Real Estate Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $313,128 $ 28,148 $ - $341,276
Insurance 483 - 43,896 44,379
Other 287 289 18,899 19,475
Intercompany 17,729 156 (17,225) 660
Pretax income 66,615 5,729 17,845 90,189
Six Months Ended June 30, 1999
Consumer Centralized Total
Branches Real Estate Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $660,188 $ 79,734 $ - $739,922
Insurance 854 - 87,673 88,527
Other (428) 3,758 40,191 43,521
Intercompany 35,026 94 (33,894) 1,226
Pretax income 147,407 13,034 39,739 200,180
Six Months Ended June 30, 1998
Consumer Centralized Total
Branches Real Estate Insurance Segments
(dollars in thousands)
Revenues:
External:
Finance charges $621,225 $ 54,707 $ - $675,932
Insurance 975 - 86,365 87,340
Other 231 (9) 38,152 38,374
Intercompany 34,991 206 (33,902) 1,295
Pretax income 122,896 12,268 34,564 169,728
<PAGE>
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Reconciliation of total segment pretax income to the condensed consolidated
financial statement amounts is summarized below:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
Pretax income:
Segments $100,848 $ 90,189 $200,180 $169,728
Corporate (14,177) (17,502) (33,770) (25,912)
Total consolidated
pretax income $ 86,671 $ 72,687 $166,410 $143,816
Note 7. Acquisition of Standard Pacific Savings, F.A.
In May 1999, AGFI acquired Standard Pacific Savings, F.A. from Standard
Pacific Corporation. Upon acquisition, the Office of Thrift Supervision
granted approval to rename the institution American General Bank, FSB (AG
Bank). AG Bank is currently operating as a traditional thrift, offering
deposit and savings products, providing residential mortgage and home
equity lending, and financing private label receivables.
In June 1999, AG Bank acquired certain operating assets and assumed certain
deposit liabilities from American General Financial Center (AGFC-Utah), a
subsidiary of AGFI. AG Bank also assumed the participation agreement from
AGFC-Utah, which allows AGFC to purchase private label receivables
originated by AG Bank.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company's sources of funds include operations, issuances of long-term
debt, short-term borrowings in the commercial paper market, and borrowings
from banks under credit facilities. AGFI has also contributed capital to
the Company when needed for finance receivable growth or other
circumstances. Management believes that the overall sources of liquidity
available to the Company will continue to be sufficient to satisfy its
foreseeable financial obligations and operational requirements.
<PAGE>
<PAGE> 10
Liquidity
The following table shows principal sources and uses of cash flow:
Six Months Ended
June 30,
1999 1998
(dollars in millions)
Principal sources of cash flow:
Operations $266.2 $207.6
Net issuance of debt 345.1 600.6
Capital contributions - 22.0
Principal sources of cash flow $611.3 $830.2
Principal uses of cash flow:
Net originations and purchases
of finance receivables $405.6 $714.2
Dividends paid 136.0 26.3
Increase in premiums on finance
receivables purchased and
deferred charges 13.0 66.0
Principal uses of cash flow $554.6 $806.5
Capital Resources
The Company's capital requirements vary directly with the level of net
finance receivables. The mix of capital between debt and equity is based
primarily upon maintaining leverage that supports cost-effective funding.
At June 30, 1999, the Company's capital totaled $10.6 billion, consisting
of $9.0 billion of debt and $1.6 billion of equity, compared to $9.2
billion at June 30, 1998, consisting of $7.7 billion of debt and $1.5
billion of equity.
The Company issues a combination of fixed-rate debt, principally long-term,
and floating-rate debt, principally short-term. AGFC and one of its
subsidiaries sell commercial paper notes with maturities ranging from 1 to
270 days directly to banks, insurance companies, corporations, and other
institutional investors. AGFC also sells extendible commercial notes with
initial maturities of up to 90 days which may be extended by AGFC to 390
days and offers medium-term notes with original maturities of nine months
or longer to institutional investors. AGFC obtains the remainder of its
funds primarily through underwritten public debt offerings with maturities
generally ranging from three to ten years.
The Company manages anticipated cash flows of its assets and liabilities in
an effort to reduce the risk associated with unfavorable changes in
interest rates. Management determines the Company's mix of fixed-rate and
floating-rate debt based, in part, on the nature of the assets being
supported. The Company limits its exposure to market interest rate
increases by fixing interest rates that it pays for term periods. The
primary means by which the Company accomplishes this is through the
issuance of fixed-rate debt. To supplement fixed-rate debt issuances, AGFC
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<PAGE> 11
also uses interest rate swap agreements to synthetically create fixed-rate
debt by altering the nature of floating-rate funding, thereby limiting its
exposure to adverse interest rate movements. In addition, AGFC has used
treasury rate lock agreements to hedge against the risk of rising interest
rates on anticipated long-term debt issuances.
Dividends have been paid (or capital contributions have been received) to
maintain the Company's leverage of debt to tangible equity (equity less
goodwill and net unrealized gains or losses on investment securities) to
6.50 to 1. The debt to tangible equity ratio at June 30, 1999 was 6.50 to
1. Certain AGFC financing agreements limit the amount of dividends AGFC
may pay.
Liquidity Facilities
The Company participates in credit facilities to support the issuance of
commercial paper and to provide an additional source of funds for operating
requirements. The Company is an eligible borrower under committed credit
facilities extended to American General and certain of its subsidiaries
(the "shared committed facilities"). At June 30, 1999, the annual
commitment fees for the shared committed facilities ranged from .05% to
.07%. The Company pays only an allocated portion of the commitment fees
for the shared committed facilities. The Company also has uncommitted
credit facilities and is an eligible borrower under uncommitted credit
facilities extended to American General and certain of its subsidiaries
(the "shared uncommitted facilities"). Available borrowings under all
facilities are reduced by any outstanding borrowings.
Information concerning the credit facilities follows:
June 30,
1999 1998
(dollars in millions)
Committed credit facilities:
Shared committed facilities $5,000.0 $4,800.0
Borrowings - -
Remaining availability $5,000.0 $4,800.0
Uncommitted credit facilities:
Company uncommitted facilities $ 141.0 $ 141.0
Shared uncommitted facilities 150.0 200.0
Borrowings - -
Remaining availability $ 291.0 $ 341.0
Year 2000 Contingency
Internal Systems. The Company has modified its internal systems to achieve
Year 2000 readiness and has executed a plan to minimize the risk of a
significant negative impact on its operations.
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<PAGE> 12
The Company's plan included the following activities: (1) perform an
inventory of the Company's information technology and non-information
technology systems; (2) assess which items in the inventory may expose the
Company to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove
that they will function into the next century as they do currently; and (5)
return the systems to operations. As of June 30, 1999, these activities
had been substantially completed, making the Company's critical systems
Year 2000 ready.
The Company will continue to test its systems throughout 1999 to maintain
Year 2000 readiness. In addition, the Company currently is developing
plans for the century transition, which will restrict systems modifications
from November 1999 through January 2000, create rapid response teams to
address problems, and limit vacations for key personnel.
Third Party Relationships. The Company has relationships with various
third parties who must also be Year 2000 ready. These third parties
provide (or receive) resources and services to (or from) the Company and
include organizations with which the Company exchanges information. Third
parties include vendors of hardware, software, and information services;
providers of infrastructure services such as voice and data communications
and utilities for office facilities; and customers. Third parties differ
from internal systems in that the Company exercises less, or no, control
over third parties' Year 2000 readiness.
The Company has developed a plan to assess and mitigate the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. The Company's plan includes the following: (1) identify and
classify third party dependencies; (2) research, analyze, and document Year
2000 readiness for critical third parties; and (3) test critical hardware
and software products and electronic interfaces. As of June 30, 1999,
these activities have been substantially completed. Where necessary,
critical third party dependencies have been included in the Company's
contingency plan. Due to the various stages of Year 2000 readiness for
these critical third-party dependencies, the Company's testing activities
related to critical third parties will extend throughout 1999.
Contingency Plan. The Company's contingency planning process which was
designed to reduce the risk of Year 2000-related business failures relating
to internal systems and third party relationships, included the following
activities: (1) evaluate the consequences of failure of critical business
processes with significant exposure to Year 2000 risk; (2) determine the
probability of a Year 2000-related failure for those critical processes
that have a high consequence of failure; (3) develop an action plan to
complete contingency plan for critical processes that rank high in
consequence and probability of failure; and (4) complete the applicable
contingency plan. As of June 30, 1999, these activities have been
substantially completed. The contingency plan will continue to be tested
and updated throughout 1999.
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Risks and Uncertainties. Based on the Year 2000 readiness of its internal
systems, century transition plans, plans to deal with third party
relationships, and contingency plan, the Company believes that it will
experience at most isolated and minor disruptions of business processes
following the turn of the century. Such disruptions are not expected to
have a material effect on the Company's future results of operations,
liquidity, or financial condition. However, due to the magnitude and
complexity of this project, risks and uncertainties exist and the Company
is not able to predict a most reasonably likely worst case scenario. If
Year 2000 readiness is not achieved due to the Company's failure to
maintain critical systems as Year 2000 ready, failure of critical third
parties to achieve Year 2000 readiness on a timely basis, failure of
contingency plan to reduce Year 2000-related business failures, or other
unforeseen circumstances in completing the Company's plans, the Year 2000
issues could have a material adverse impact on the Company's operations
following the turn of the century.
Costs. Through June 30, 1999, the Company has incurred and expensed $7.2
million (pretax) related to Year 2000 readiness, including $.9 million
incurred during 1999 and $.8 million incurred in the first six months of
1998. The Company currently anticipates that it will incur future costs of
approximately $2.0 million (pretax) to maintain Year 2000 readiness and
complete any activities related to third party relationships and
contingency plan. In addition, the Company has elected to accelerate the
planned replacement of certain systems as part of its Year 2000 plan.
Costs of the replacement systems were capitalized and are being amortized
over their useful lives, recorded as operating leases, or expensed as
incurred in accordance with the Company's normal accounting policies. The
replacement costs incurred in 1998 totaled $2.1 million and are anticipated
to be immaterial for 1999.
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SELECTED FINANCIAL INFORMATION
The following table shows selected financial information of the Company:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
Average finance receivables
net of unearned finance
charges (average net
receivables) $9,679,539 $8,058,834 $9,608,362 $7,938,661
Average borrowings $8,822,236 $7,367,790 $8,759,003 $7,241,254
Yield - finance charges
(annualized) as a
percentage of average
net receivables 14.42% 16.11% 14.61% 16.29%
Borrowing cost - interest
expense (annualized) as
a percentage of average
borrowings 6.19% 6.62% 6.22% 6.67%
Interest spread - yield
less borrowing cost 8.23% 9.49% 8.39% 9.62%
Insurance revenues
(annualized) as a
percentage of average
net receivables 1.88% 2.20% 1.84% 2.20%
Operating expenses
(annualized) as a
percentage of average
net receivables 5.27% 6.17% 5.36% 6.22%
Return on average assets
(annualized) 2.03% 1.96% 1.96% 1.97%
Return on average equity
(annualized) 14.06% 13.27% 13.46% 13.23%
Charge-off ratio - net
charge-offs (annualized)
as a percentage of the
average of net finance
receivables at the
beginning of each month
during the period 1.96% 2.63% 2.05% 2.67%
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<PAGE> 15
Selected Financial Information (Continued)
At or for the
Six Months Ended
June 30,
1999 1998
Allowance ratio - allowance for finance
receivable losses as a percentage of
net finance receivables 3.85% 4.21%
Delinquency ratio - finance receivables 60
days or more past due as a percentage of
related receivables 3.56% 3.45%
Ratio of earnings to fixed charges (refer
to Exhibit 12 for calculations) 1.62 1.61
Debt to tangible equity ratio - debt to
equity less goodwill and net unrealized
gains or losses on investment securities 6.50 6.53
Debt to equity ratio 5.73 5.26
ANALYSIS OF OPERATING RESULTS
Net Income
Net income increased $10.3 million, or 22%, for the three months ended June
30, 1999 and $16.9 million, or 18%, for the six months ended June 30, 1999
when compared to the same periods in 1998. See Note 6. of the Notes to
Condensed Consolidated Financial Statements in Item 1. for information on
the results of the Company's business segments.
During 1999 and 1998, the Company continued to improve credit quality by
raising underwriting standards and increasing the proportion of real estate
loans. At June 30, 1999, real estate loans accounted for 63% of total net
finance receivables outstanding compared to 55% at June 30, 1998.
Factors which specifically affected the Company's operating results are as
follows:
Finance Charges
Finance charges increased $24.3 million, or 8%, for the three months ended
June 30, 1999 and $55.0 million, or 9%, for the six months ended June 30,
1999 when compared to the same periods in 1998 due to higher average net
receivables, partially offset by lower yield. Average net receivables
increased $1.6 billion, or 20%, for the three months ended June 30, 1999
and $1.7 billion, or 21%, for the six months ended June 30, 1999 when
compared to the same periods in 1998 primarily due to growth in real estate
loans. Yield decreased 169 basis points for the three months ended June
30, 1999 and 168 basis points for the six months ended June 30, 1999 when
<PAGE>
<PAGE> 16
compared to the same periods in 1998 primarily due to the larger proportion
of finance receivables that are real estate loans, which generally have
lower yields.
Insurance Revenues
Insurance revenues increased $1.2 million, or 3%, for the three months
ended June 30, 1999 and $1.2 million, or 1%, for the six months ended June
30, 1999 when compared to the same periods in 1998 primarily due to higher
earned premiums. Earned premiums increased primarily due to higher related
loan volume.
Other Revenues
Other revenues increased $2.3 million, or 9%, for the three months ended
June 30, 1999 and $4.9 million, or 10%, for the six months ended June 30,
1999 when compared to the same periods in 1998 primarily due to increases
in investment revenue and interest revenue on notes receivable from parent.
The increase in investment revenue reflected growth in average invested
assets and higher realized gains, partially offset by lower adjusted
portfolio yield.
Interest Expense
Interest expense increased $14.8 million, or 12%, for the three months
ended June 30, 1999 and $30.8 million, or 13%, for the six months ended
June 30, 1999 when compared to the same periods in 1998 due to higher
average borrowings, partially offset by lower borrowing cost. Average
borrowings increased $1.5 billion, or 20%, for the three months ended June
30, 1999 and $1.5 billion, or 21%, for the six months ended June 30, 1999
when compared to the same periods in 1998 primarily to support finance
receivable growth. Borrowing cost decreased 43 basis points for the three
months ended June 30, 1999 and 45 basis points for the six months ended
June 30, 1999 when compared to the same periods in 1998 due to lower rates
on both long-term and short-term debt.
Operating Expenses
Operating expenses increased $3.3 million, or 3%, for the three months
ended June 30, 1999 and $10.8 million, or 4%, for the six months ended June
30, 1999 when compared to the same periods in 1998. The increase in
operating expenses for the three months ended June 30, 1999 primarily
reflected increases in amortization of intangibles and administrative
expenses. The increase in operating expenses for the six months ended June
30, 1999 was primarily due to increases in litigation expenses,
amortization of intangibles, and administrative expenses, partially offset
by higher deferred loan origination costs. See Legal Proceedings in Part
II for further information on litigation.
<PAGE>
<PAGE> 17
Provision for Finance Receivable Losses
Provision for finance receivable losses decreased $2.6 million, or 5%, for
the three months ended June 30, 1999 when compared to the same period in
1998 due to lower net charge-offs in second quarter 1999, partially offset
by a $2.5 million reduction in the amounts provided for the allowance for
finance receivable losses in second quarter 1998. Provision for finance
receivable losses remained at near the same level for the six months ended
June 30, 1999 when compared to the same period in 1998 due to lower net
charge-offs in the first half of 1999, offset by a $7.5 million reduction
in the amounts provided for the allowance for finance receivable losses in
the first half of 1998.
Net charge-offs decreased to $47.3 million for the three months ended June
30, 1999 and $98.1 million for the six months ended June 30, 1999 compared
to $52.4 million and $105.2 million, respectively, for the same periods in
1998. The following table shows charge-off ratios by type of finance
receivable:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Real estate loans 0.57% 0.70% 0.52% 0.68%
Non-real estate loans 5.09 5.66 5.34 5.71
Total loans 1.87 2.52 1.94 2.54
Retail sales finance 2.56 3.24 2.76 3.34
Total charge-off ratio 1.96 2.63 2.05 2.67
The decrease in the charge-off ratios reflected the results of past and
ongoing credit quality improvement efforts, including higher underwriting
standards and an increased proportion of real estate loans. During second
quarter 1999, net charge-offs were reduced by $1.7 million of recoveries
from the sale of finance receivables previously charged off.
At June 30, 1999, delinquencies were $366.3 million compared to $312.1
million at June 30, 1998. The following table shows delinquency ratios by
type of finance receivable:
June 30,
1999 1998
Real estate loans 3.25% 2.75%
Non-real estate loans 5.08 5.29
Total loans 3.82 3.71
Retail sales finance 1.87 2.15
Total delinquency ratio 3.56 3.45
The increase in the delinquency ratio from June 30, 1998 reflected the
maturing of purchased real-estate portfolios, which were primarily new
originations when purchased.
At June 30, 1999, the allowance for finance receivable losses was $376.2
million compared to $355.6 million at June 30, 1998. The allowance ratio
at June 30, 1999 was 3.85% compared to 4.21% at June 30, 1998. The Company
maintains the allowance for finance receivable losses at a level based on
<PAGE>
<PAGE> 18
periodic evaluation of the finance receivable portfolio, which reflects an
amount that, in management's opinion, is adequate to absorb anticipated
losses in the existing portfolio.
Insurance Losses and Loss Adjustment Expenses
Insurance losses and loss adjustment expenses decreased $2.2 million, or
10%, for the three months ended June 30, 1999 and $4.3 million, or 10%, for
the six months ended June 30, 1999 when compared to the same periods in
1998 due to decreases in claims paid, partially offset by increases in
provision for future benefits. Claims decreased $3.0 million and $5.9
million, respectively, primarily due to favorable loss experience on credit
insurance. Provision for future benefits increased $.8 million and $1.6
million, respectively, due to increased sales of non-credit insurance
products.
Provision for Income Taxes
The provision for income taxes increased $4.2 million, or 15%, for the
three months ended June 30, 1999 and $6.5 million, or 11%, for the six
months ended June 30, 1999 when compared to the same periods in 1998 due to
higher taxable income, partially offset by lower effective tax rates. The
effective tax rate was 36.34% and 36.33%, respectively, for the three and
six months ended June 30, 1999 compared to 37.71% and 37.69%, respectively,
for the same periods in 1998.
Forward-looking Statements
All statements, trend analyses, and other information contained in this
report relative to trends in the Company's operations or financial results,
as well as other statements including words such as "anticipate,"
"believe," "plan," "estimate," "expect," "intend," and other similar
expressions, constitute forward-looking statements under the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
made based upon management's current expectations and beliefs concerning
future developments and their potential effects upon the Company. There
can be no assurance that future developments affecting the Company will be
those anticipated by management. Actual results may differ materially from
those included in the forward-looking statements.
These forward-looking statements involve risks and uncertainties including,
but not limited to, the following: (1) changes in general economic
conditions, including the performance of financial markets, interest rates,
and the level of personal bankruptcies; (2) competitive, regulatory, or tax
changes that affect the cost of, or demand for, the Company's products; (3)
the Company's ability or the ability of third parties to achieve and
maintain Year 2000 readiness for critical systems and operations; (4) the
ability to secure necessary regulatory approvals; and (5) adverse
litigation results or resolution of litigation. Readers are also directed
to other risks and uncertainties discussed in other documents filed by the
Company with the Securities and Exchange Commission. The Company
undertakes no obligation to update or revise any forward-looking
information, whether as a result of new information, future developments,
or otherwise.
<PAGE>
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
California v. Ochoa
In March 1994, a subsidiary of AGFI and a subsidiary of AGFC were named as
defendants in a lawsuit, The People of the State of California v. Luis
Ochoa, Skeeters Automotive, Morris Plan, Creditway of America, Inc., and
American General Finance, filed in the Superior Court of California, County
of San Joaquin, Case No. 271130. California sought injunctive relief, a
civil penalty of not less than $5,000 per day or not less than $250,000 for
violation of its Health and Safety Code in connection with the failure to
register and remove underground storage tanks on property acquired through
a foreclosure proceeding by a subsidiary of AGFI, and a civil penalty of
$2,500 for each act of unfair competition prohibited by its Business and
Professions Code, but not less than $250,000, plus costs. This lawsuit was
dismissed on June 8, 1999.
Other
AGFC and certain of its subsidiaries are parties to various other lawsuits
and proceedings arising in the ordinary course of business. Many of these
lawsuits and proceedings arise in jurisdictions, such as Alabama and
Mississippi, that permit damage awards disproportionate to the actual
economic damages alleged to have been incurred. Based upon information
presently available, the Company believes that the total amounts that will
ultimately be paid, if any, arising from these lawsuits and proceedings
will not have a material adverse effect on the Company's consolidated
results of operations and financial position. However, the frequency of
large damage awards, including large punitive damage awards, that bear
little or no relation to actual economic damages incurred by plaintiffs in
jurisdictions like Alabama and Mississippi continues to create the
potential for an unpredictable judgment in any given suit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated April 28, 1999, with respect to the
issuance of an Earnings Release announcing certain unaudited financial
results of the Company for the quarter ended March 31, 1999.
Current Report on Form 8-K dated July 28, 1999, with respect to the
issuance of an Earnings Release announcing certain unaudited financial
results of the Company for the quarter ended June 30, 1999.
<PAGE>
<PAGE> 20
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL FINANCE CORPORATION
(Registrant)
Date: August 13, 1999 By /s/ Robert A. Cole
Robert A. Cole
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
<PAGE> 21
Exhibit Index
Exhibits Page
(12) Computation of Ratio of Earnings to Fixed Charges. 22
(27) Financial Data Schedule. 23
<PAGE>
<PAGE> 22
Exhibit 12
<TABLE>
AMERICAN GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1999 1998
(dollars in thousands)
<S> <C> <C>
Earnings:
Income before provision for income
taxes $172,859 $149,453
Interest expense 271,874 241,071
Implicit interest in rents 7,718 5,712
Total earnings $452,451 $396,236
Fixed charges:
Interest expense $271,874 $241,071
Implicit interest in rents 7,718 5,712
Total fixed charges $279,592 $246,783
Ratio of earnings to fixed charges 1.62 1.61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 99,284
<SECURITIES> 987,746
<RECEIVABLES> 9,773,064<F1>
<ALLOWANCES> 376,191<F2>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F4>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 11,366,352
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 5,432,902<F5>
0<F3>
0<F3>
<COMMON> 5,080
<OTHER-SE> 1,565,166<F6>
<TOTAL-LIABILITY-AND-EQUITY> 11,366,352
<SALES> 0<F3>
<TOTAL-REVENUES> 839,979<F7>
<CGS> 0<F3>
<TOTAL-COSTS> 0<F4>
<OTHER-EXPENSES> 297,105<F8>
<LOSS-PROVISION> 98,141<F9>
<INTEREST-EXPENSE> 271,874<F10>
<INCOME-PRETAX> 172,859
<INCOME-TAX> 62,805
<INCOME-CONTINUING> 110,054
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 110,054
<EPS-BASIC> 0<F3>
<EPS-DILUTED> 0<F3>
<FN>
<F1>RECEIVABLES IN THIS EXHIBIT REPRESENTS NET FINANCE RECEIVABLES REPORTED
IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>ALLOWANCES IN THIS EXHIBIT REPRESENTS ALLOWANCE FOR FINANCE RECEIVABLE
LOSSES REPORTED IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<F3>NOT APPLICABLE.
<F4>NOT REPORTED SEPARATELY (OR NOT REPORTED SEPARATELY AS DEFINED BY
ARTICLE 5 OF REGULATION S-X) IN DOCUMENT FILED.
<F5>BONDS IN THIS EXHIBIT REPRESENTS LONG-TERM DEBT REPORTED IN THE COMPANY'S
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH INCLUDES
OTHER LONG-TERM DEBT.
<F6>OTHER STOCKHOLDER'S EQUITY IN THIS EXHIBIT REPRESENTS ADDITIONAL PAID-IN-
CAPITAL, ACCUMULATED OTHER COMPREHENSIVE INCOME, AND RETAINED EARNINGS
REPORTED IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<F7>TOTAL REVENUES IN THIS EXHIBIT REPRESENTS TOTAL REVENUES REPORTED IN THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F8>OTHER EXPENSES IN THIS EXHIBIT REPRESENTS OPERATING EXPENSES AND
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES REPORTED IN THE COMPANY'S
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F9>LOSS PROVISION IN THIS EXHIBIT REPRESENTS PROVISION FOR FINANCE
RECEIVABLE LOSSES REPORTED IN THE COMPANY'S UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
<F10>INTEREST EXPENSE IN THIS EXHIBIT REPRESENTS INTEREST EXPENSE REPORTED
IN THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
